Getting export payment is undoubtedly the most satisfying moment as an exporter. Export payments are one of the joys and sorrows of export trade. The reason for the joy is obvious. Those who are earning bread by exporting, they will be happy. But understanding the export payment properly is also a matter of great concern at the same time.
Export payment is a complex process. Having an idea of the following ten issues will help you understand the complexities of export payments. They will also work in case of timely payment.
Consignment as Export Payments
Invoices that are used for ordering export is called a consignment. Before going to the final contract and activities, consignment will be signed with mutual consent of both the importer and exporter.
Letter of Credit (LC)
Well, this is about Letter of Credit, which is called the international transaction paying document. Without Letter of Credit, international trade can’t happen. LC is a guarantee given by importer’s bank to the Exporter to pay the bill on behalf of his customers or importers. Issuing bank provides LC when importer has much reserve money in his bank account. In some cases, issuing bank issues LC without having much reserve money of importer if importer has so much fame in international business or by seeing his current economic conditions, his past international trades etc.
Telegraphic Transfer (TT)
Also Known as Telex transfer, TT is the most widely used method of payment in Bangladesh Export Transactions. Simply put TT is an advance wire transfer of payment against Export invoices. Overwhelmingly favored by exporters as money is received beforehand and short time frame. TT is not a preferred method for importers. However, depending on the level of authority of the buyers and sellers, Business deals can be done through TT. TT is an electronic method of wire transferring done though Banks
Back to Back LC
When one or more new LCs are opened based on a Master LC, it is called Back-to-back LC. According to the needs of the buyer or importer needs to import raw materials for the production of the product. For this purpose, LC is opened with LC Bank and it is the back-to-back LC.
A new LC can be opened for the import of raw material by securing an LC. Then open the new LC for the import to back-to-back LC.
Commercial invoice is a type of customs document in foreign trade where the value of the exported product is mentioned (customs taxation determines the tax related to the sale of goods outside the country). The exporter has to submit it to his local bank for the acceptability of the price paid by the importer. This document contains the names of exporters and importers, exported product details, payment terms (LCs, TTs), commodity prices, exported products, etc.
Exporter prepares Commercial Invoice before the shipments in its own letterhead according to the number of shipments. If product is transported in two shipments, Exporter will prepare two commercial invoices. If shipment is three, Commercial Invoice will be three.
The demand draft is a negotiable payment document. bank issues this document. This is an alternative to bank check. In this, a bank gives money to any other party on the other side, giving a draft to another bank.
Documents against Payment
Documents Against Payment (D / P) is a type of payment system in foreign trade. In this case, the buyer will pay the price immediately after getting the documents. This process is similar to LC at Sight, but the bank does not guarantee payment.
Since the buyer’s bank does not provide any guarantee, the cost of this method is the lowest. However, the transaction is a bit volatile since the bank does not provide any guarantee for paying the price. Moreover, there may be a risk of not accepting a buyer’s document or purchasing of a customer. However, if there is a very good relationship between the buyer and the seller, transactions in such a manner are safe.
Letter of Credit Authorization Form (LCAF)
LCAF is the Opening Application Form of Letter of Credit. It is the internal process of the bank. For importing goods, the issue was made from the authorized dealer branch of Bangladeshi commercial banks, according to Import Policy Order. The application is sent to L / C with the approval of the bank. This indent letter is to be shown to the taxpayers for the import of the goods.
Standby Letter of Credit
Standby Letter of Credit (SLOC) is a special letter of credit, where the issuing bank guarantees the payment to the third party only in the failure of its subscriber.
Under the letter of credit (LC), the issuing bank guarantees payment to the third party in its failure to pay the customer’s price. Then it is called the standby letter of credit / Standby Letter of Credit (SLOC). This is a special letter of credit (LC).
This is a secure communication network. Through which all money transmissions (basically banks) circulate throughout the world. Through its circulation, global financial transactions have become much safer, easier and quality.
Failure to receive export payments on time will disrupt the main purpose of your trade. While performing various functions related to the production and transportation of goods proper care should be taken.